Shifting focus: Asia elbows US out of Latin American markets

South Korea and China are setting up shop in the United States’ backyard, as Latin America is searching for countries eager for its resources among Asian economies hungry for raw materials.

South Korea and Latin America further strengthened their ties at Tuesday’s high-level Economic Cooperation Forum. The region’s economic behemoths – Brazil and Mexico – were in attendance.

Peru, Uruguay, Paraguay, Costa Rica, Chile, El Salvador, the Dominican Republic and Guatemala all sent high-ranking business representatives to the two-day event in Seoul.

The draw of the South Koreans was even enough to bring Colombia together with its ideological enemies – Ecuador and Nicaragua.

South Korea is developing a pragmatic and effective Latin America policy. Unlike some of its rivals vying for position in the region – such as the EU, Iran and the US – South Korea’s partnerships are not shaped by ideology.

Bilateral trade is burgeoning, leaping from $13.3 billion in 2003 to $47 billion in 2008.

Restrictions eased

Chile and the event’s hosts have had an FTA in place since 2004. President Lee Myung-bak is working on similar accords with Peru, Colombia, Mexico and Mercosur (Latin America’s common market).

The traditional relationship between Latin America and South Korea is exemplified by Ecuador’s trade of natural resources, or their exploitation rights, in exchange for technical assistance and investment.

Ecuador’s Minister for Non-renewable Natural Resources Germanico Pinto told The Korea Herald: “We are witnessing a shift in how both Latin America and Korea view the world, and they are now no longer focused only on the United States.”

US not beaten yet

Latin America wants to move away from the US for economic and political reasons. It is finding other markets for its resources, such as oil, iron ore and soya.

However, the diversification is slow. In 2008, 42% of Latin America’s exports still went to the US, compared to 5.6% to China.

Nonetheless, US-Latin American trade continues to grow. There are FTAs in place with Mexico, the Dominican Republic, Chile and Peru. Additionally, agreements are pending with Panama and Colombia.

US influence remains strong. Predictably, in 2008, 73% of Mexico’s trade was with its neighbor and ally. Less predictable, however, was that 42% of oil-exporting Venezuela’s trade was with the “empire” – anti-capitalist President Hugo Chávez’s term for the United States.

Changing relationships

Twenty years ago, these high proportions would have been commonplace throughout the continent. However, the US share of trade has diminished.

Now, for example, Argentina – Latin America’s third-largest economy – saw only 7% of last year’s trade with the US and 11% with China.

However, the declining economic weight of the United States is best demonstrated by Latin America’s largest economy, Brazil. In April, China elbowed the US off the top of its list of most important trading partners after nearly 80 years.

Trade between the two has leapt up nearly twelve times since 2001. Welber Barral, the Brazilian trade minister, described the usurpation of the US as “an historic moment”.

The rise of the East

China is capitalizing on its natural political links with the Bolivarian Alliance for the Peoples of Our America (ALBA), the socialist grouping of nine Latin American countries set up by Cuba and Venezuela in 2004.

It is simultaneously developing economic ties with ALBA’s political rivals, the Latin American members of the US-driven Free Trade Area of the Americas: Mexico, Colombia and Peru.

China’s President Xi Jinping was welcomed everywhere he went on his nine-nation tour of the region in February. While other lenders have become more circumspect, China continues to make generous loans. They add to China’s influence now and affirm its access to Latin America’s raw materials in years to come.

China has made a substantial commitment by joining the Inter-American Development Bank and South Korea’s government has set out long-term plans for the region.

The economic primacy of the US in Latin America will remain for the foreseeable future. However, despite the geographical distances, South Korea and China’s trade-driven policies will pay increasing dividends.